F5 Gets NASDAQ Warning, Shares Surge

F5 Networks’ shares surged more than six percent today after NASDAQ warned the company that it faces delisting. Clearly, the delisting notification could not have been the reason for the spike in F5’s share price, so other factors must be at work.

As reported yesterday, NASDAQ regulators warned F5 that it was out of compliance with a rule that requires timely filings with the Securities and Exchange Commission (SEC). Seattle-based F5, a market leader in networking gear that facilitates the delivery and optimization of application traffic, said it would challenge the warning by asking for a hearing before a NASDAQ listing-qualification panel. Until that hearing occurs and a judgment is rendered, F5’s stock will continue to trade on the exchange.

In July, F5 said it would restate earnings for the past five years and delay its latest quarterly filing due to issues with past stock options grants.

The company has reported that an internal review of past stock-option granting practices identified at least one instance where there was a discrepancy between the date on which option grants should have been recorded and the grant date on which the options were improperly filed. To resolve that discrepancy and any others that might emerge, F5 must incur commensurate charges and restate its earnings for the affected periods.

As in the case of Juniper Networks, rumors are buzzing that F5’s option-backdating problems could result in a serious reconfiguration of the personnel in the company’s executive suites. F5 CEO John McAdam is alleged by some to be under careful regulatory scrutiny because of similar issues that arose at Sequent Computer Systems back in the 1990s, when he served as that company’s president and chief operating officer.

While F5 consistently has determinedly steered its own course as an independent player and market leader in application traffic management, a growing drumbeat suggests that the company, under duress from the distraction and uncertainty associated with the stock-option backdating controversy and from renewed competition from Cisco and Citrix (among others), might be receptive to a reasonably priced takeover proposal.

Microsoft had been mentioned as one candidate that might choose to acquire the company, but a more likely candidate might be EMC Corporation, the market-leading storage vendor that has added security technologies to its portfolio and might be interested in the secure data-center and WAN-optimization capabilities that F5 could add to its roster.

One thing is certain: Investors and market makers did not bid up the value of F5’s shares today because they are overjoyed at the company’s receipt of a delisting notification from NASDAQ.

One response to “F5 Gets NASDAQ Warning, Shares Surge”

F5 would be just fine without McAdam. While he’s a good-enough CEO, there are plenty of people who could replace him. F5 will survive or fail based on its products, not McAdam.

The loss of the CEO could even be a positive for the stock price (and shareholders) because it potentially leads to a takeover, with a possible bidding war. And we all know the bottom line is the stock price.